The latest information on the rating, including rating reports and related methodologies, is available on this LINK.

Rating action

Scope Ratings affirms its BBB/Stable issuer rating on Glitre Energi AS, as well as the S-2 short-term rating and BBB senior unsecured rating.

Rating rationale

The issuer rating is still driven by Glitre Energi’s cost-efficient and environmentally friendly hydropower production, which generates relatively high and stable profitability over time. The company’s established hedging agreements in place mitigant the underlying industry risk volatility to some degree. At the same time, the use of cash-settled contracts on Nasdaq for hedging activities resulted in notable cash flow volatility in the 2018 and 2019 period, when forward prices fluctuated. However, Glitre Energi’s vertically integrated value chain over time supports stability as well as Scope’s overall business risk assessment. Limited geographical outreach for selected segments, some asset concentration risk, and a lack of flexibility in water-reservoir capacity (due to run-of-the-river power plants) also affect the company’s business risk profile.

The hydro power production segment has seen increased EBITDA during 2019, and its relative contribution to overall group EBITDA has also risen. Scope expects this trend to continue into 2020, further driven by lower expected profitability in the distribution segment.

Although cash generation in 2018-2019 was more volatile than expected due to cash-settled hedging contracts, Scope recognises Glitre Energi’s positive free operating cash flow over time. Further, Scope expects the company to keep Scope-adjusted leverage ratios stable at around 3.5x and anticipates that debt protection metrics will stabilise at higher levels than in the past. Overall, Scope’s assessment of Glitre Energi’s financial risk profile is largely unchanged from last year, supported by Scope’s recently updated medium-term forecast for the group.

The Stable Outlook reflects Scope’s expectations that Glitre Energi will continue to: i) be a diversified utility, with operations in power production, distribution and sales; ii) fund its medium-term capex programme using internally generated cash flow; and iii) reduce volatility through hedging initiatives. As a result, Scope anticipates that key credit metrics will remain largely unchanged in the medium term.

Rating-change drivers

A positive rating action could be warranted if Glitre Energi were to materially increase the share of its distribution business or deleverage to a SaD/EBITDA of below 3.0x on a sustained basis.

A negative rating action is possible if the company were to participate in a debt-financed structural transaction that either substantially weakened its business risk profile or resulted in a SaD/EBITDA of well above 4x and prolonged negative free operating cash flow generation.

Stress testing & cash flow analysis
No stress testing was performed. Scope performed its standard cash flow forecasting for the company.

Methodology
The methodologies used for this rating and rating outlook (Corporate Rating Methodology, European Utilities Methodology, Government Related Entities) are available on www.scoperatings.com.
Historical default rates of the entities rated by Scope Ratings can be viewed in the rating performance report on https://www.scoperatings.com/#governance-and-policies/regulatory-ESMA. Please also refer to the central platform (CEREP) of the European Securities and Markets Authority (ESMA): http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml. A comprehensive clarification of Scope’s definitions of default and rating notations can be found at https://www.scoperatings.com/#governance-and-policies/rating-scale.
The rating outlook indicates the most likely direction of the rating if the rating were to change within the next 12 to 18 months

Solicitation, key sources and quality of information
The rated entity participated in the rating process.
The following substantially material sources of information were used to prepare the credit rating: public domain, the rated entity, third parties and Scope internal sources.
Scope considers the quality of information available to Scope on the rated entity or instrument to be satisfactory. The information and data supporting Scope’s ratings originate from sources Scope considers to be reliable and accurate. Scope does not, however, independently verify the reliability and accuracy of the information and data.
Prior to the issuance of the rating or outlook action, the rated entity was given the opportunity to review the rating and/or outlook and the principal grounds on which the credit rating and/or outlook is based. Following that review, the rating was not amended before being issued.

Regulatory disclosures
This credit rating and/or rating outlook is issued by Scope Ratings GmbH.
Lead analyst: Henrik Blymke, Managing Director
Person responsible for approval of the rating: Sebastian Zank, Executive Director
The ratings/outlooks were first released by Scope on 4 January 2018. The ratings/outlooks were last updated on 18 December 2018.

Potential conflicts
Please see www.scoperatings.com for a list of potential conflicts of interest related to the issuance of credit ratings.

Conditions of use / exclusion of liability
© 2019 Scope SE & Co. KGaA and all its subsidiaries including Scope Ratings GmbH, Scope Analysis GmbH, Scope Investor Services GmbH and Scope Risk Solutions GmbH (collectively, Scope). All rights reserved. The information and data supporting Scope’s ratings, rating reports, rating opinions and related research and credit opinions originate from sources Scope considers to be reliable and accurate. Scope does not, however, independently verify the reliability and accuracy of the information and data. Scope’s ratings, rating reports, rating opinions, or related research and credit opinions are provided ‘as is’ without any representation or warranty of any kind. In no circumstance shall Scope or its directors, officers, employees and other representatives be liable to any party for any direct, indirect, incidental or other damages, expenses of any kind, or losses arising from any use of Scope’s ratings, rating reports, rating opinions, related research or credit opinions. Ratings and other related credit opinions issued by Scope are, and have to be viewed by any party as, opinions on relative credit risk and not a statement of fact or recommendation to purchase, hold or sell securities. Past performance does not necessarily predict future results. Any report issued by Scope is not a prospectus or similar document related to a debt security or issuing entity. Scope issues credit ratings and related research and opinions with the understanding and expectation that parties using them will assess independently the suitability of each security for investment or transaction purposes. Scope’s credit ratings address relative credit risk, they do not address other risks such as market, liquidity, legal, or volatility. The information and data included herein is protected by copyright and other laws. To reproduce, transmit, transfer, disseminate, translate, resell, or store for subsequent use for any such purpose the information and data contained herein, contact Scope Ratings GmbH at Lennéstraße 5 D-10785 Berlin.

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